SolarCity, Tesla Motors Dance to the Elon Musk Beat

By Ben Levisohn

SolarCity (SCTY) leases solar panels. Tesla Motors (TSLA) manufactures and sells electric cars. And as we all know, they’re both the brainchild of one man: Elon Musk.

Reuters

Which got me thinking: Does that link impact how Tesla and Solar City trade? On first glance, it sure appears that way. Today, for instance, SolarCity has dropped 4.7% after it beat fourth-quarter earnings forecasts but guided below Street expectations for the current quarter. Tesla, with little meaningful news of its own unless you count this, has fallen 1.5%.

To see if there was more than anecdotal evidence, I ran the 24-day correlation (essentially one month of trading) between SolarCity and Tesla. A correlation of 100% means two stocks move in lockstep, while a correlation of -100% means they move in complete opposition. Right now, the correlation between the two stocks is 61.1%, well above the 12-month average of 37.7%. During the past 12 months, the correlation between the two stocks has been as low as -39.8%, which means they were generally heading in opposite directions during that period–and as high as 77.9%, meaning they were pretty much marching to the beat of the same drummer.

This chart, too, shows how the relationship between Tesla and Solar City waxes and wanes. (Please note that the scales are different. Tesla is on the right, Solar City on the left.)

Of course, correlation is not causation. And it also tells us little about the magnitude of the moves. Tesla Motors has gained 572% during the past 12 months, while SolarCity is up “just” 330%. Clearly, though, both stocks are benefiting from living in the glow of Elon Musk, even if he’s not the next Steve Jobs.

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There are 13 comments

MARCH 19, 2014 2:25 P.M.

Smart Money wrote:

Yet another example as to why Tesla will soon crash. Most of the rally has been driven by unsophisticated retail investors who have no clue how Tesla earns money or how to value a business. They simply see Elon Musk as the messiah, so they blindly pile into the stock. They are lemmings following each other off the cliff.

MARCH 19, 2014 2:48 P.M.

JamesD wrote:

Smart Money, hmmm? This is what people said 5 years ago. What drives the stock is execution, outlook, lack of competition and gas prices. Soon crash? when? Specify or go away. Tesla is far cheaper than Facebook or LinkedIn, or dozens more that could be named. So You are smarter than Morgan Stanley ? Prove it.

MARCH 19, 2014 2:57 P.M.

Anon wrote:

An interesting insight. If tsla is being bought on the cult basis of musk as messiah, then will it ever fall?

Tesla stock has clearly been detached from the reality of the company as a business for over a year. So is tela more like bitcoin? There is nothing in the tesla facilities worth even of fraction of its market cap, there is no IP that will allow tesla to dominate the EV or any other car market.

even the Toronto garage fire, which tesla admits WAS caused by the car, but not the main battery, did not faze the market price....

Tsla stock as a cult is the only logical explanation for its market price.

MARCH 19, 2014 4:06 P.M.

Andrew wrote:

I'm hardly an expert, and I rode TSLA from $34 to $150 and got out on the messiah logic. So initially I was in smart money's camp on this one.

However, I think there's some sense that TSLA's battery production will expand beyond just vehicles and be a growth engine in addition to the vehicle side. So, other industries could feasibly license the technology or presumably purchase batteries from TSLA.

Also: the last time a stock was driven at least in part by the messiah concept - as in, Steve Jobs at Apple - there turned out to be substance there. And Elon Musk is still alive...

MARCH 19, 2014 4:41 P.M.

Anonymous wrote:

Apple was highly profitable from day one
and innovative
tesla has been selling EVs for over ten years, and has yet to make a real profit
or to do anything that has not been done before
ditto solar city
ditto spaceX

MARCH 19, 2014 6:50 P.M.

Tom wrote:

@Anonymous, how on earth can you say SpaceX has not done "anything that has not been done before"? Their reusable Grasshopper rocket technology is a massive gamechanger.

MARCH 19, 2014 8:07 P.M.

Wiseeinvestor wrote:

Here's one of the reasons why many of the solar lease and PPA companies will have trouble competing in 2014. This will cost 1/3 the amount of a 20 year $0 down solar lease and it's only available for purchase no expensive leasing: http://vimeo.com/79755125

MARCH 19, 2014 9:09 P.M.

Anonymous wrote:

tom, no. NASA built hovering rockets back in the 60s and 70s. the concept was abandoned as financially unworthy.

Did you catch musk telling the senate hearing they US better buy rocket engines from spaceX, incase we have to go thermonuclear on Russia? the guy will do or say anything for a buck.

What happened to 'private enterprise will produce the most cost effective/best space craft' ?! Apparently spaceX cannot build rocket engines as well as Russia, otherwise musk would have skipped the bull kwrap 'why do we have to pay Russia to fly to the ISS' sob story and simply DO IT better and cheaper.

its so sad, its outright pathetic. the ISS is the INTERNATIONAL space station. The Russians ditched their highly successful MIR space station as a requirement to be apart of the ISS program. Did you ever hear a Russian lament "why do we have to fly on the space shuttle and goto the American ISS?"

musk is full of kwrap, he always has been from the days of paypal. Sales of the tesla model S peaked in the US at the end of last summer, and now in Europe as well.

Throwing other peoples money at a problem is not a game changer. The tesla car is absurdly expensive, and solves nothing. Take a look at the Ford Fusion hybrid. It can go 20 miles as a plug in, and gets over 100 mpg running in mixed mode. It can also cruse the highways at 90 mph all day long for long road trips, refueling in minutes, not an hour. It has a full electric drive train, and a Li Ion battery, AND a 4 cylinder turbo charged ICE drive train, seats 5 adults, and it only costs $31k before tax breaks.

MARCH 19, 2014 11:16 P.M.

Cato wrote:

Jealous much, Anonymous? The envy is dripping off your keyboard.

Tesla and SpaceX are game changers -- remember, Rome wasn't built in a day.

MARCH 19, 2014 11:34 P.M.

Alpha wrote:

You Tesla fans are all brainwashed. You may not realize this obvious fact, but Tesla is just a car that travels from point A to point B. It is not revolutionary.

MARCH 19, 2014 11:50 P.M.

gopher65 wrote:

Anon:

Russia and China have already stated that they cannot match SpaceX's current prices. Nor can India, for that matter. If SpaceX's reusable rocket technology bears fruit, then they will be offering prices that are 10 times lower than what the Russians and Chinese are offering, 30 times lower than their nearest American competitor, and 1/200th of what NASA's SLS will cost per pound.

So yes, SpaceX is doing something different than everyone else.

Oh, and you're right: NASA did pioneer reusable rockets - and they kept on pioneering them right up until the US Congress passed laws banning them from doing so. Just like NASAs inflatable space station idea (cheaper, better protection from space junk and radiation, larger station sizes) that Congress banned them from developing. Just like nuclear rockets that NASA was banned from developing. Every one of NASA's good ideas (except nuclear rockets - so far anyway) has been picked up by someone else. Often with NASA's assistance, since they themselves didn't want to abandon their research. They were forced to do so.

And I'm sorry, but the fact that Congress is full of shortsighted old men who think that the internet is a "series of tubes" and wouldn't know a rocket engine from a boat engine isn't SpaceX's fault. They are but one of many company's and organizations that picked up old NASA research and ran with it. Believe it or not, that makes NASA people happy.

MARCH 20, 2014 6:26 A.M.

Anonymous wrote:

Gopher swilled the koolaid like a true cult member.
Spaces has not yet done ANYTHING CHEAPER than anyone. To date their mostly empty resupply flights to the ISS HAVE COST NASA $100,000 per pond of delivered supplies.
Take is cheap and musk is full of it.
The laws of physics cannot be BSd away.
Even selling cars for $110,000 musk cannot show an real profit.
But he doesn't care, every time he secures more money, he pockets ten percent as his admin fee and gets to keep it, no matter how bad his company
Or spaceships
Or cars
Crash and burns.
Keep swilling the koolaid.
And no, I am not jealousy of a bullkwrap artist
Some of us have figured out how to make money without deceiving people.

MARCH 26, 2014 7:19 P.M.

Ron Winton wrote:

Here's more bad news for the solar lease and PPA companies. The largest $0 down PACE (Property Assessed Clean Energy) financing program is ready to launch in California.

Operated under the auspices of the California Statewide Communities Development Authority (CSCDA), the CaliforniaFIRST residential PACE program will launch this summer in 17 California counties and 167 cities, and makes solar projects more affordable and accessible for millions of California homeowners.

Offering no money down financing, tax deductible interest payments and re-payment through one's property tax bill, this innovation financing program will for the most part, probably put an end to expensive solar lease and PPA financing in the state of California.

The PACE financing mechanism was first pioneered by the City of Berkeley for its residential owners in 2008 and has since spread to over 30 states.

This is bad news for the solar lease and PPA companies. What homeowner in his or her right mind is going to sign a 20 year solar lease or PPA contract which offers no tax deductible interest when they can get $0 down PACE financing that offers tax deductible interest while keeping the 30% federal tax credit and any other applicable financial incentive on a much lower priced system, (sub $3.00 a watt) for a much greater return on their investment. PACE financing will spell the end of solar leases and PPAs in California in 2014.

About Stocks To Watch

Earnings reports, corporate strategies and analyst insights are all part of what moves stocks, and they’re all covered by the Stocks to Watch blog. We also look at macro issues, investor sentiments and hidden trends that are affecting the market. Stocks to Watch gives you the full picture of the U.S. stock markets, all day long.

The blog is written by Ben Levisohn, a former stock trader who has covered financial markets for the Wall Street Journal, Bloomberg and BusinessWeek.